Revolutionizing Business Ethics: The Rise of CSRD

What is the definition of CSR?

CSR stands for Corporate Social Responsibility

The European Commission defines CSR as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”.

To put it briefly, CSR revolves around the notion that companies bear an obligation to serve the community in which they operate, which is a more comprehensive perspective than the one that confines businesses’ responsibilities to generating economic profit.

It is a business model that refers to a company’s voluntary commitment to operating in a way that benefits society and the environment, in addition to generating profits for shareholders.

CSR involves taking into account the impact of a company’s activities on its stakeholders, including employees, customers, suppliers, the community, and the environment.

CSR initiatives can take various forms, such as philanthropy, employee volunteer programs, environmental sustainability programs, ethical business practices, and community development projects.

The goal of CSR is to create a sustainable and responsible business model that goes beyond profit-making and contributes positively to society and the environment.

What is the ethos of CSR?

Corporate social responsibility is a type of self-governance and can be extremely personalized; the approach and undertakings of CSR will differ depending on the specific company.

CSR actions are generally optional, notwithstanding the increasing number of CSR regulations. Businesses carry them out voluntarily to evaluate and mitigate their impact on society and the environment, as well as to make contributions to society and acquire benefits linked with creating constructive social value (like better risk management and greater employee engagement).

The “Triple Bottom Line” is frequently used to direct CSR practices, which comprises economic, environmental, and social objectives in the pursuit of beneficial outcomes.

How does CSR work?

CSR works by incorporating social and environmental responsibility into a company’s business model and decision-making processes. It involves identifying and managing the potential impacts that a company’s operations may have on its stakeholders and the environment. The following are some ways in which CSR works:

1. Stakeholder engagement: Companies engage with their stakeholders, including employees, customers, suppliers, communities, and other interested parties, to understand their needs and concerns and to create value for them.
2. Environmental sustainability: Companies implement sustainable business practices to reduce their environmental impact, such as using renewable energy, reducing waste and emissions, and conserving natural resources.
3. Ethical business practices: Companies adhere to ethical business practices and comply with relevant laws and regulations to ensure that they operate in a fair and transparent manner.
4. Philanthropy and volunteerism: Companies engage in philanthropic activities, such as donating money or resources to charitable causes, or supporting employee volunteer programs.
5. Supply chain management: Companies work with their suppliers to ensure that they meet ethical and environmental standards and promote responsible sourcing.

By integrating these practices into their business operations, companies can create shared value for their stakeholders, promote sustainability, and contribute positively to society and the environment.

What are the principles of CSR?

The principles of CSR are a set of guidelines that companies can follow to ensure that they are acting in a socially responsible manner. While different organizations may define the principles of CSR differently, some common principles include:

1. Accountability: Companies should be accountable for their actions and their impact on society and the environment.
2. Transparency: Companies should be transparent about their business practices, including their social and environmental performance.
3. Ethical behavior: Companies should act in an ethical and responsible manner, following ethical principles and values such as honesty, integrity, and respect for human rights.
4. Respect for stakeholder interests: Companies should consider the interests and needs of their stakeholders, including employees, customers, suppliers, communities, and shareholders.
5. Environmental sustainability: Companies should adopt sustainable business practices to reduce their environmental impact, such as using renewable energy, reducing waste and emissions, and conserving natural resources.
6. Respect for human rights: Companies should respect human rights and avoid contributing to or benefiting from human rights abuses.
7. Community involvement: Companies should be involved in their local communities and contribute to their social and economic development.

By following these principles, companies can create shared value for their stakeholders, promote sustainability, and contribute positively to society and the environment.

What are the CSR key categories?

There are generally four broad categories of Corporate Social Responsibility (CSR):

1. Environmental responsibility: This includes a company’s efforts to reduce its environmental impact, conserve natural resources, and minimize pollution and waste.
2. Social responsibility: This encompasses a company’s engagement with and impact on society, including issues such as labor practices, human rights, community development, and philanthropy.
3. Economic responsibility: This refers to a company’s obligation to operate with sound financial principles, including generating profits, paying taxes, and contributing to economic development.
4. Ethical responsibility: This relates to a company’s commitment to conducting its business with integrity and in accordance with ethical principles, including transparency, honesty, and accountability.

What are the CSR key concepts and terms?

Some key concepts and terms related to CSR include:

1. Stakeholders: These are individuals or groups that have a stake or interest in a company’s activities, such as employees, customers, suppliers, communities, and shareholders.
2. Sustainability: This refers to the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs.
3. Corporate citizenship: This refers to a company’s responsibility to contribute positively to society and the environment, beyond its legal and economic obligations.
4. Social impact: This refers to the positive or negative effects that a company’s activities have on society, such as creating jobs, improving health, or contributing to environmental degradation.
5. Environmental impact: This refers to the positive or negative effects that a company’s activities have on the environment, such as pollution, greenhouse gas emissions, and resource depletion.
6. Corporate philanthropy: This refers to the act of donating money or resources to charitable causes, typically through a corporate foundation or charitable giving program.
7. Ethical business practices: This refers to the principles and values that guide a company’s behavior, including honesty, integrity, and respect for human rights.
8. Supply chain management: This refers to the process of managing a company’s relationships with suppliers to ensure that they meet ethical and environmental standards.
9. Reporting and transparency: This refers to the practice of disclosing information about a company’s social and environmental performance to stakeholders, such as through sustainability reports or other public disclosures.

By understanding these key concepts and terms, companies can develop and implement effective CSR strategies that create shared value for their stakeholders and contribute to a more sustainable and responsible business model.

What is the evolution of CSR regulations?

The evolution of CSR regulations refers to the historical development of laws, policies, and initiatives aimed at promoting corporate social responsibility. The evolution of CSR regulations can be traced back to the early 20th century, when some governments began to regulate business practices to protect consumers and workers. However, it was not until the latter half of the 20th century that the concept of CSR began to emerge as a distinct business strategy.

Here are some key milestones in the evolution of CSR regulations:

1. 1950s-1960s: The modern environmental movement emerged, spurred by concerns over pollution and environmental degradation. Governments began to enact laws and regulations to address these issues, such as the U.S. Clean Air Act and the U.S. Environmental Protection Agency.
2. 1970s-1980s: The concept of “corporate social responsibility” began to gain traction, as businesses began to acknowledge the importance of considering their impact on society and the environment. Some companies began to adopt CSR policies and practices, while governments continued to regulate businesses to protect consumers, workers, and the environment.
3. 1990s-2000s: CSR became more mainstream, with many companies adopting CSR policies and practices as a way to enhance their reputation, attract customers, and improve their bottom line. Governments began to encourage CSR through various initiatives, such as the U.N. Global Compact and the ISO 26000 standard on social responsibility.
4. 2010s-present: CSR continues to evolve, with a growing emphasis on sustainability, stakeholder engagement, and transparency. Governments and other organizations are also placing greater pressure on companies to address social and environmental issues, such as climate change and human rights abuses.

Overall, the evolution of CSR regulations reflects a growing recognition of the role that businesses play in society and the need for companies to adopt responsible and sustainable practices to create shared value for their stakeholders.

What are the recent CSR regulations?

The recent regulations related to CSR vary depending on the country and region. However, here are some examples of recent regulations and initiatives related to CSR:

1. European Union Non-Financial Reporting Directive: In 2014, the European Union introduced the Non-Financial Reporting Directive, which requires large companies to report on their environmental, social, and governance (ESG) performance, including their policies and outcomes related to CSR.
2. UK Modern Slavery Act: In 2015, the UK government introduced the Modern Slavery Act, which requires certain companies to disclose their efforts to address modern slavery and human trafficking in their supply chains.
3. California Transparency in Supply Chains Act: In 2010, California introduced the Transparency in Supply Chains Act, which requires certain companies to disclose their efforts to address slavery and human trafficking in their supply chains.
4. United Nations Sustainable Development Goals (SDGs): In 2015, the United Nations introduced the 2030 agenda for sustainable development. The Sustainability Development Goals were introduced, which are a set of 17 goals aimed at addressing global social, economic, and environmental challenges. Many companies have since aligned their CSR strategies with the SDGs.
5. Corporate Sustainability Reporting Directive (CSRD): In 2021, the European Union proposed the CSRD, which aims to expand the scope of the Non-Financial Reporting Directive to include more companies and require more detailed reporting on ESG issues.

These are just a few examples of recent regulations and initiatives related to CSR. Overall, there is a growing trend towards increased regulation and reporting on CSR issues, as governments and other organizations seek to address social and environmental challenges and hold companies accountable for their impact on society and the environment.

How do the recent regulations impact companies?

In 2014, the European Parliament passed regulations that mandated certain companies (with over 500 employees) to reveal information regarding their Corporate Social Responsibility (CSR) activities, effectively making impact reporting a compulsory obligation, in addition to standard financial reporting.

At that time, the main sustainability disclosure regulations in the EU were the EU Taxonomy, the Sustainable Finance Disclosure Regulation (SFDR), and the Non-Financial Reporting Directive (NFRD). These regulations outlined the scope of reporting and the required activities, with some overlap between the three.

In 2021, the European Commission (EC) put forth a proposal for a Corporate Sustainability Reporting Directive (CSRD) that revised the reporting requirements of the NFRD, and essentially updated the directives of the aforementioned regulations.

What are the new company requirements?

The proposal for a Corporate Sustainability Reporting Directive (CSRD) put forth by the European Commission (EC) includes the following requirements:

1. Extended scope: The CSRD would apply to all large companies and listed SMEs, regardless of whether they are incorporated in the EU or not.
2. Standardization: The CSRD aims to establish a uniform set of standards for sustainability reporting, making it easier for companies to disclose their sustainability information and for stakeholders to compare information across companies.
3. Digitalization: The CSRD would require companies to report sustainability information in a digital format using a standardized and machine-readable format, to facilitate data analysis and comparability.
4. Assurance: The CSRD would introduce a mandatory requirement for companies to have their sustainability information assured by an independent auditor or audit firm.
5. Double materiality: The CSRD would require companies to disclose how their sustainability risks and opportunities could impact their financial performance and how their financial performance could impact sustainability.
6. Alignment with global standards: The CSRD aims to ensure that EU sustainability reporting standards are aligned with international reporting standards, such as the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD).

Sources:

• European Union. (2014). Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups. URL: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014L0095&from=EN
• UK Government. (2015). Modern Slavery Act 2015. URL: https://www.legislation.gov.uk/ukpga/2015/30/contents/enacted
• California Legislative Information. (2010). California Transparency in Supply Chains Act of 2010. URL: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=200920100SB657
• United Nations. (2015). Transforming our world: The 2030 agenda for sustainable development. URL: https://sdgs.un.org/2030agenda
• European Commission. (2021). Corporate Sustainability Reporting Directive. URL: https://ec.europa.eu/info/publications/sustainable-finance-corporate-sustainability-reporting-directive_en

Quick facts of the CSRD proposal

Key things to know about the CSRD proposal is that it:

• Extends the scope of the NFRD
• Requires an audit of reported information
• Introduces more detailed reporting requirements (refers to mandatory EU sustainability reporting standards), and
• Requires companies to make reported information accessible to a shared access point.

CSR vocabulary

• Materiality: refers to the significant economic, environmental, and social impacts of an organization, as well as the issues that greatly influence the assessments and decisions of stakeholders. This definition is from NYU Stern. Source: https://www.stern.nyu.edu/experience-stern/about/departments-centers-initiatives/centers-of-research/center-for-sustainable-business/materiality
• The ARO (Avoid, Reduce, Offset): approach outlines the three steps, in order of priority, that define sustainability efforts, especially with regards to emissions and resource conservation. Source: https://www.carbontrust.com/resources/avoid-reduce-offset-aroplan
• The Sustainable Development Goals: are a set of 17 global goals that are interlinked and were designed by the United Nations as a blueprint for a better and more sustainable future. Source: https://www.un.org/sustainabledevelopment/sustainable-development-goals/
• The Triple P’s (People, Planet, and Profit): also known as the “Triple Bottom Line,” expand business success metrics beyond immediate profit to include a focus on environmental and social impacts as well. Source: https://www.investopedia.com/terms/t/triple-bottom-line.asp
• Ethical consumerism: is a form of activism where consumers choose or reject products based on the practices and values of the company producing the product. Source: https://www.investopedia.com/terms/e/ethical-consumerism.asp
• CSR Verification: According to the CSR Implementation Guide, CSR verification is “a form of measurement that can take place in any number of ways: internal audits, industry (peer) and stakeholder reviews, and professional third-party audits.” Going through the verification process is a best practice for CSR activities because it strengthens transparency and accountability around CSR. Source: https://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/other-autre/csr-rse/guide-implantation-csr-implementation-guide.aspx?lang=eng
• Stakeholder theory: is based on the idea that companies should create widespread value, not just for shareholders. It highlights the varied relationships between all groups and individuals impacted by the corporation and holds that these relationships should create positive value. Potential company stakeholders might include employees, customers/clients, suppliers, the local community, and public authorities. Source: https://www.investopedia.com/terms/s/stakeholder-theory.asp